FUNDING developing countries’ climate change mitigation and adaptation efforts was never going to be easy. But, it has become more uncertain with the United States’s withdrawal from the Paris Accord. As a candidate, the US had pledged US$3 billion (RM12.5 billion) towards the 2020 target of US$100 billion yearly for the Green Climate Fund (GCF).

The GCF was formally established in December 2011 “to make a significant and ambitious contribution to the global efforts towards attaining the goals set by the international community to combat climate change”. In the 2009 Copenhagen Accord, developed economies had promised to mobilise US$100 billion yearly for climate finance by 2020.

However, only a small fraction has been pledged, let alone disbursed so far. As of July, only US$10.1 billion has come from 43 governments, including nine developing countries, mostly for start-up costs. The US had contributed US$1 billion. Now that the US has announced its withdrawal from the 2015 climate treaty, the remaining US$2 billion will not be forthcoming.

Moreover, the US$100 billion goal is vague. For example, disputes continue over whether it refers to public funds, or whether leveraged private finance will also count. The Organisation for Economic Co-operation and Development projected last year that pledges worldwide would add up to US$67 billion yearly by 2020. But, such estimates have been inflated by counting commercial loans to buy green technology from developed countries.

Even if all the pledged finance is raised, it would still be inadequate to finance a rapid transition to renewable energy globally, forest conservation, as well as atmospheric greenhouse gas sequestration. The Hamburg-based World Future Council (WFC) estimates that, globally, annual investment of US$2 trillion is needed to retain a chance of keeping temperature rise below 1.5°C.

Obviously, the task is daunting, especially for developing countries more vulnerable to climate change. Therefore, in adopting the Marrakech Vision at the 2016 22nd Conference of Parties to meet 100 per cent domestic renewable energy production as rapidly as possible, 48 members of the Climate Vulnerable Forum advocated an “international cooperative system” for “attaining a significant increase in climate investment in public and private climate finance from wide ranging sources, including international, regional and domestic mobilisation”.

Hence, two options, proposed by the United Nations and WFC, are worth serious consideration. The UN proposal involves using Special Drawing Rights (SDRs) of the International Monetary Fund for a particular kind of development finance, namely climate finance. It involves floating bonds backed by SDRs, not directly spending SDRs. Thus, for example, the GCF would issue US$1 trillion in bonds, backed by US$100 billion in SDR equity.

The WFC has proposed that central banks of developed countries continue “quantitative easing” (QE), but not to buy existing financial assets. Instead, they should invest in “Green Climate Bonds” (GCBs) issued by multilateral development banks, the GCF or other designated climate finance institution to fund renewable energy projects in developing countries.

This should have some other potential benefits.

FIRST, it will not destabilise the financial system of emerging economies, whereas QE has fuelled speculation and asset price bubbles;

SECOND, it is less likely to increase inflation as it will be used for productive investments;

THIRD, for the above reasons, it should not exacerbate inequality;

FOURTH, it will also help industrial countries, as developing countries receiving climate finance will be importing technology and related services from developed economies;

FIFTH, GCBs can become near permanent assets of central banks due to their very long duration; and,

SIXTH, supporting sustainable development in climate vulnerable developing countries will ensure more balanced global development, which is also in the interest of industrialised countries themselves. IPS

Jomo Kwame Sundaram, a former economics professor, was United Nations assistant secretary-general for economic development and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions from 2008 to 2015 in New York and Bangkok.